Stanley Druckenmiller (Trades, Portfolio) is a hedge fund manager and investor who is perhaps best known for managing George Soros (Trades, Portfolio)’ Quantum Fund in the 1990s. After that, he went on to found his own fund, Duquesne Capital, which he closed in 2010 in order to focus on managing his family’s money.
Although he is not a stock-picker in a conventional sense (apart from stocks, he also trades in fixed income, commodities and currencies), he has an ability to rationally assess the market in a manner than I think any value investor can learn from. Here are some of his recent comments on today’s market and on investing abroad.
We are borrowing from the future
Druckenmiller has been a vocal critic of deficit spending and easy monetary policy. He believes that sooner or later these policies are going to spell serious trouble for the American economy. In an interview with Bloomberg last December, he explained this point of view:
“I’ve believed that expansions end usually with tight monetary policy or credit problems. And I think what we’re doing is definitely borrowing from the future, and will probably end badly as the ‘07 period did. But that could be years”.
However, in the short-to-medium term, Druckenmiller believes that the economy is in relatively good shape, joking that at age 66, what happens in the long run might not affect him personally. I think this exchange underscores a key problem with the strategy of attempting to time the market.
Even though you may think that the economy is due for a recession at some point in the future, it’s impossible to know exactly when that might happen, as evidenced by the fact that even professionals managing billions of dollars cannot make accurate predictions. So instead, shrewd investors pay attention to valuations, buying what is cheap and staying away from what is overpriced. This way, you don’t have to be right about the timing. Sooner or later price tends to come back into line with reality.
Overseas investment opportunities
Druckenmiller believes that the post-Brexit United Kingdom will be an excellent place for investors to deploy capital. He drew an analogy to help U.S. investors better understand this market:
“What if I told you there was a Republican President, but a better version, and you had two-thirds Republican majorities in both Houses of Congress and you had a deficit-to-GDP [ratio] of 2, not 4.5; and you had a debt-to-GDP [ratio] lower than the United States, and 12 times earnings and a 4% yield - sounds like a decent place to invest to me!”
In particular, he believes that UK financials are well-positioned to perform in the post-Brexit era. This is something that I have believed for a while too - the uncertainty surrounding the process of withdrawing from the EU has weighed on UK stocks far more than the consequences of the withdrawal itself will. Now that there is a resolution to the impasse (even if it is not the optimal one), that creates a good environment for investors.
Disclosure: The author owns no stocks mentioned.
Read more here:
- Charlie Munger: Be a Generalist in a World of Specialists
- Warren Buffett: Writing Will Make You a Better Investor
- Bruce Berkowitz: Two Factors That Investors Should Consider
Not a Premium Member of GuruFocus? Sign up for a free 7-day trial here.
